Most employees look at their gross salary and roughly know their take-home pay — but few understand the bands, allowances and tapers behind it. With the Personal Allowance frozen until 2028, more workers are dragged into higher tax bands every year. This guide explains, in plain English, how UK take-home pay works in 2025/26, where the cliff edges sit and the legal moves that can shift you back across them.
The Personal Allowance — the amount you earn tax-free — is £12,570. Income above that and up to £50,270 is taxed at the basic rate of 20%. Income from £50,270 to £125,140 is taxed at the higher rate of 40%. Income above £125,140 is taxed at the additional rate of 45%.
Scotland operates its own income tax system with more bands and slightly different thresholds. The Scottish higher rate is 42% from £43,663, and the top rate is 48% above £125,140. National Insurance and the Personal Allowance, however, remain UK-wide.
Earnings above £100,000 trigger one of the most punishing features of the UK tax system: the Personal Allowance taper. For every £2 you earn above £100,000, you lose £1 of allowance. By £125,140 the allowance is gone entirely.
The combined effect is a marginal tax rate of 60% on income between £100,000 and £125,140, before NI. Earning a £10,000 bonus in that band leaves you with around £4,000. Pension contributions and salary sacrifice are powerful here — every £1 sacrificed below £100,000 saves you 60p in tax plus NI.
Class 1 employee NI is 8% on earnings between £12,570 and £50,270, and 2% above. The rate cut from 12% to 8% in April 2024 saved an average employee around £900 a year, although fiscal drag has clawed much of it back.
If you earn between £6,396 and £12,570, you pay no NI but still build a qualifying year for State Pension purposes. Self-employed Class 4 NI is 6% between £12,570 and £50,270 and 2% above; Class 2 is automatically paid via Self Assessment when profits exceed £6,725.
Salary sacrifice means you formally agree to a lower salary in return for an employer pension contribution of equivalent value. Because the contribution is paid before income tax and NI, both you and your employer save NI. Employers often pass their NI saving (13.8%) on to you as well.
A higher-rate taxpayer sacrificing £5,000 typically gets £6,569 into their pension at a personal cost of £2,900 — a 127% effective uplift. For someone in the £100k-£125k band the maths is even better. Always check that sacrificing won't reduce mortgage borrowing capacity, life cover or sick pay before signing up.
Student loans are repaid at 9% on income above the relevant threshold (£28,470 for Plan 2, £26,065 for Plan 1, £32,745 for Plan 4). Postgraduate loans are 6% above £21,000. Plans can run together, stacking the marginal rate.
Auto-enrolment pension contributions (typically 5% from you, 3% from your employer on banded earnings) are deducted from gross pay. Childcare vouchers and the Cycle to Work scheme also reduce taxable income within their respective annual limits.
It tells your employer how much tax-free pay to give you each period. A wrong code (e.g. an emergency BR or 0T) overtaxes you — check it on your payslip and contact HMRC if it looks wrong.
No — they're taxed at your marginal rate. They feel high because PAYE often spreads the bonus assumption across the year, then trues up later.
Yes, that's the defining feature versus standard 'relief at source' contributions which save income tax only.
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